The VC Market in Asia
Asia
The venture capital market in Asia is one of the most dynamic and exciting markets on the planet. The recent increases in outsourcing and offshoring to Asian markets have been accompanied by a wave of investment. The bulk of venture capital in the Asian markets is being used to fund innovative new companies, often in the tech sectors. Venture capitalists are also finding opportunities in rescuing family businesses and providing financial exits. It takes more than just booming opportunity to make a successful venture capitalist, however. The business is in many ways an apprenticeship business, with those coming in taking years to fully understand the intricacies of the trade. Investors like Efraim Landa are highly skilled and have much experience funding startups in the world’s venture capital markets. Many investors currently estimate that in 5 to 10 years the venture capital market in Asia will be fully matured. There is a lot that needs to be done in that relatively short period of time.
Venture capitalists invest in new technologies and ideas. The startups they fund set out to commercialize novel ideas in order to make a profit. This is not an easy process and there are many ways for things to go wrong. In general, it may take 5 to 7 years for a venture capitalist to see whether an investment in a new company was a hit or a write-off. Due to the long-term nature of these investments, venture capital funds need to plan for a period of 5 to 10 years into the future.
Localities
Inside a venture capital region such as Asia, there are many smaller markets, largely divided along national borders. These smaller, nation-specific markets may be quite different from each other depending on local law, tax structures, cultural concerns, and many other factors. In Asia, there are four basic subgroups of venture capital markets: (a) Japan and Korea;(b) Hong Kong (China), Singapore, and Taiwan (China); (c) China; and (d) developing Asia, which includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
The second category can be further subdivided into two subgroups, which can be termed the export-oriented venture capital industries of Singapore and Hong Kong, which most closely resemble the industries of New York and London, and the technology oriented industry of Taiwan, which most closely resembles the industry of Silicon Valley. Overall, there has been significant growth in China, Hong Kong, Korea, Singapore, and Taiwan. The removal of a tax rebate by the Taiwanese government has made it more difficult for venture capitalists in Taiwan to secure funds, however.
Differences with the North American Venture Capital Market
While there are certainly many similarities between Asian and North American venture capital markets, there are a couple of big differences. These differences largely come in terms of funding and government participation. In the Asian markets, industrial corporations have traditionally been the largest source of funds for venture capital, whereas in the United States, industrial corporations have committed very little to private venture capital funds. In each Asian market, the government has played some role in funding private venture capital, though the amount varies from nation to nation. In Singapore, the government is the second largest investor. This government participation is not as robust in the North American venture capital markets.
Venture capital investments require clarity in laws and regulations. Both India and China have opened their economies by taking steps to remove major impediments; however, such changes are still taking root. These countries see innovation and entrepreneurship as stimulating a virtuous cycle of growth and prosperity.
As domestic markets in India and China in particular continue to grow, a domestic venture capital industry will increasingly focus on meeting local and regional needs. Local venture capitalists will need access to global markets for their companies, and investments by global investors in Asian venture capital funds will provide a vital link. Investors from the United States and around the world have continued interest in investing in Asia.
Venture capital is about great success, but also about learning from failure, and it is a cyclical business. So far, Asia has been on the rise. As the markets are still rather new in Asia, it remains to be seen how Asian venture capitalists and entrepreneurs will weather the stresses of a down cycle.
Venture capitalists invest in new technologies and ideas. The startups they fund set out to commercialize novel ideas in order to make a profit. This is not an easy process and there are many ways for things to go wrong. In general, it may take 5 to 7 years for a venture capitalist to see whether an investment in a new company was a hit or a write-off. Due to the long-term nature of these investments, venture capital funds need to plan for a period of 5 to 10 years into the future.
Localities
Inside a venture capital region such as Asia, there are many smaller markets, largely divided along national borders. These smaller, nation-specific markets may be quite different from each other depending on local law, tax structures, cultural concerns, and many other factors. In Asia, there are four basic subgroups of venture capital markets: (a) Japan and Korea;(b) Hong Kong (China), Singapore, and Taiwan (China); (c) China; and (d) developing Asia, which includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
The second category can be further subdivided into two subgroups, which can be termed the export-oriented venture capital industries of Singapore and Hong Kong, which most closely resemble the industries of New York and London, and the technology oriented industry of Taiwan, which most closely resembles the industry of Silicon Valley. Overall, there has been significant growth in China, Hong Kong, Korea, Singapore, and Taiwan. The removal of a tax rebate by the Taiwanese government has made it more difficult for venture capitalists in Taiwan to secure funds, however.
Differences with the North American Venture Capital Market
While there are certainly many similarities between Asian and North American venture capital markets, there are a couple of big differences. These differences largely come in terms of funding and government participation. In the Asian markets, industrial corporations have traditionally been the largest source of funds for venture capital, whereas in the United States, industrial corporations have committed very little to private venture capital funds. In each Asian market, the government has played some role in funding private venture capital, though the amount varies from nation to nation. In Singapore, the government is the second largest investor. This government participation is not as robust in the North American venture capital markets.
Venture capital investments require clarity in laws and regulations. Both India and China have opened their economies by taking steps to remove major impediments; however, such changes are still taking root. These countries see innovation and entrepreneurship as stimulating a virtuous cycle of growth and prosperity.
As domestic markets in India and China in particular continue to grow, a domestic venture capital industry will increasingly focus on meeting local and regional needs. Local venture capitalists will need access to global markets for their companies, and investments by global investors in Asian venture capital funds will provide a vital link. Investors from the United States and around the world have continued interest in investing in Asia.
Venture capital is about great success, but also about learning from failure, and it is a cyclical business. So far, Asia has been on the rise. As the markets are still rather new in Asia, it remains to be seen how Asian venture capitalists and entrepreneurs will weather the stresses of a down cycle.